Second-quarter earnings for Microsoft Corp. may
have been unspectacular, but by meeting reduced expectations
analysts believe investors will likely return to snap up shares of
the software giant.
"It's not great," Goldman Sachs analyst Rick Sherlund said of
Microsoft's 7 percent increase in net earnings. "But I think
people are saying 'look, the bad news is already out there, and I
think it's safe to own this one.' "
Microsoft reported net income of $2.62 billion, or 47 cents per
share, on revenue of $6.59 billion for the quarter ended Dec. 31.
For the same period last year, it reported profits of $2.44
billion, or 44 cents per share, on $6.11 billion in revenue.
Analysts surveyed by First Call/Thomson Financial had expected
second-quarter earnings of 47 cents per share, down from earlier
estimates of 49 cents. Estimates were lowered after the Redmond,
Wash.-based company warned in December that it expected earnings to
be down 5 or 6 percent from earlier expectations because of
slumping PC sales.
Earnings were released at the close of markets, but after-hours
investors gave Microsoft an immediate boost Thursday night. Shares
increased to $59.19 after finishing regular trading on the Nasdaq
Stock Market at $55.63.
"It's a bit of a relief rally," said analyst Scott McAdams of
McAdams Wright Ragen in Seattle. "People are just saying thank
goodness things weren't worse."
Microsoft's stock price plunged from a high of $116.06 in early
2000 to as low as $40.25 in December.
"Revenue came in a little higher than we had anticipated, so we
were pleased with the performance to close the quarter," said John
Connors, Microsoft chief financial officer, citing corporate
contracts for the Windows 2000 operating system, among other items.
Microsoft, however, is retaining a cautious outlook over the
next few months, Connors said. The company reduced third-quarter
expectations to 42 or 43 cents per share; analysts had been
expecting 44 cents per share.
The company expects revenue for the full fiscal year to be in
the range of $25.2 billion to $25.4 billion, and earnings per share
to be in the range of $1.80 to $1.82, right where analysts were
"The largest uncertainty is just the general state of the
United States, and therefore the world economy and what that means
for PC demand and technology spending in general," Connors said.
He also said the company would look to trim costs in all
"There is fat within that organization, and it's fat because
they make a lot of investments. They do a lot of things that may
not pay dividends for several years," McAdams said.
Steve Kleynhans, an analyst with technology consulting firm Meta
Group in Stamford, Conn., said there were few surprises in the
report, since "retail sales of PCs weren't exactly barn-burners
for the last quarter of last year."
For the six months ended Dec. 31, Microsoft had profits of $4.83
billion or 87 cents per share on revenues of $12.39 billion. In the
year-ago period, it earned $4.63 billion or 84 cents per share on
revenues of $11.50 billion.
Dwight Davis, an industry analyst with market research and
consulting firm Summit Strategies in Kirkland, said Microsoft is
depending in the short term on strengthening Windows 2000 server
"I think that will happen as we go through this (calendar)
year," he said. The operating system is pretty much a known
quantity now, and there are a number of applications that are out
there that are starting to exploit Windows 2000 capabilities."